Equities set for a bear hug over the coming months

Goldman Sachs has downgraded its outlook on equities to “neutral” over the next 12 months, saying there’s no particular reason to own them.

“Until we see sustained signals of growth recovery, we do not feel comfortable taking equity risk, particularly as valuations are near peak levels,” the firm said in a research note.

Goldman also upgraded commodities to “neutral” on a three-month basis, stayed “overweight” on credit over both 3- and 12-month horizons, and remained “underweight” on bonds.

The investment bank upgraded commodities to neutral on a three-month basis, saying supply disruptions should support oil prices. At the same time, growth and valuation concerns led it to downgrade equities to neutral over a 12-month horizon.

Outages across the world have helped lift oil prices from below $28 per barrel in January to near $50 today. Major industrial metals such as copper and aluminium, alongside precious metals like gold and silver, have also rallied recently.

“Until we see sustained signals of growth recovery, we do not feel comfortable taking equity risk, particularly as valuations are near peak levels,” Goldman analysts wrote in a note.

“Our equity strategists have become more defensive, owing to heightened drawdown risk and growth scarcity,” they added.

Goldman Sachs has previously said embattled metal markets, which respond more slowly to supply side adjustments, will take longer to recover compared to the stricken oil sector.

“While metal prices are expected to be supported over the next one to two months … we forecast that near-term metals support will prove to be fleeting on a one to two year view, both on an outright basis, and relative to oil,” Goldman said at the time.